Wall Street pros have been predicting the "Great Rotation" from bonds into stocks for six years. With Donald Trump's election victory and the Republicans' hold on control of Congress, the time finally may have come.
Money flocked into equity and out of fixed income funds last week at a near-record pace as Wall Street digested the Republican billionaire's stunning upset in the Nov. 8 presidential balloting. Though one week hardly establishes a long-term trend, the numbers were stunning, particularly considering that pretty much everyone on the Street thought a Trump victory would trigger an immediate market slide.
Stock-based funds took in $28 billion, the largest inflow in two years and, by one count, the third-most ever. Bond funds saw just the opposite, with $18 billion in outflows, notching the biggest move in 3½ years, according to Bank of America Merrill Lynch.
The disparity between bond and equity flows for the week was the biggest ever.
Michael Hartnett, BofAML's chief investment strategist, coined the "Great Rotation" term in 2010. However, the trade hasn't materialized. The past decade in total has seen $1.5 trillion in inflows to bonds and near-flat flows for equity funds.
Hartnett called last week's moves a "violent rotation" and pointed out a "bond bloodbath" that included money leaving not only U.S. fixed income but also record redemptions in emerging market bonds. Municipal bonds also saw their largest outflows in 3½ years and Treasurys saw their highest outflows in a year.